A decade-long survey of Bitcoin mining farms: Huge profits are a thing of the past, while miners are losing a lot of money

Sichuan has many nicknames since ancient times, such as “Land of Abundance”, “Home of Pandas”, and “Heaven of Food”. But in recent years, it has gained a new nickname: “Mining Capital of the World”. The “mining” in “Mining Capital of the World” refers to the mining of virtual currency Bitcoin, which began on November 1, 2008.

In the ten years from 2008 to 2018, the price of one Bitcoin has gone from worthless to a peak value of nearly US$20,000 (about RMB 130,000) to about US$6,400 now. Behind the changes in Bitcoin prices is a global mining war.

In the eyes of most of the public, Bitcoin, which is valued at tens of thousands, is a highly profitable industry, and getting on board the Bitcoin ship is equivalent to embarking on the road to wealth.

At the end of October, when a reporter from Shangyou News (WeChat ID: shangyounews) was interviewing a "mine" in the western Sichuan Plateau, industry insiders admitted that "mining" not only faces changes in regulatory policies from government departments, but now due to the sharp drop in currency prices, "mine owners" are all in a state of loss. "A mining machine loses an average of 40 yuan per month. A computer room with 10,000 mining machines loses 400,000 yuan per month."

On October 31, a hydroelectric power station located in the mountains of the western Sichuan Plateau directly supplies electricity to a nearby Bitcoin "mine". Photo by Hu Lei, trainee reporter of Upstream News

“Miners”: This is not a life for young people

According to foreign media statistics, about 70% of the world's Bitcoin is produced in China, and most of China's Bitcoin is produced in Sichuan. Due to abundant hydropower resources and good climatic conditions, the cost of mining is lower than in most parts of the world. Sichuan's title of "World Mining Capital" comes from this.

Starting from Chengdu, after passing through expressways, provincial roads, county roads and unnamed village roads, at the end of October, Upstream News reporters arrived at a hydropower station deep in the mountains of the western Sichuan Plateau. The mysterious Bitcoin "mine" was in a board house next to the power station.

Shi Lei (pseudonym) told Upstream News reporters that before coming to the western Sichuan Plateau, he worked as a network administrator in an Internet cafe in his hometown of Chongqing, and had some basic knowledge of the Internet.

In July 2016, a relative suddenly found Shi Lei and said that he had contracted a computer room in a power station on the western Sichuan Plateau and was short of a network administrator. He wanted to ask him to help and the salary would definitely be better than that of a network administrator.

"The salary is not low, food and accommodation are all included, and the boss is my relative, so he will definitely not cheat me." In this way, Shi Lei came to the computer room in this power station. After Shi Lei arrived, he found that this computer room was the already popular Bitcoin "mine".

The mine where Shi Lei works is built next to a hydroelectric power station. There is no hustle and bustle of the city here. Every day, there are blue skies and snow-capped mountains to accompany you. But it is too lonely. It takes 40 minutes to drive from the mine to the nearest town.

Shi Lei often rests in the board dormitory after work every day, and eats only heavy-tasting dishes in the cafeteria. His daily life is to take good care of the "mining machine": use an electric hair dryer to clean the mining machine, promptly deal with the mining machine that jumps due to high temperature or other reasons, and maintain the stable operation of the computer room. According to regulations, the "miners" must patrol the computer room every hour, day and night, year after year, day after day, regular and boring, "I regret coming here a little bit, it's not the life of young people, there is no place to spend money."

Shi Lei explained the concepts of "mining" and "mining farms" in a popular way, saying that mining is a way to obtain Bitcoins, and the computers used to earn Bitcoins are called mining machines. Later, after "mining" was operated on a large scale, these computers were simplified into "four-in-one" boxes with fans. These "four-in-one" machines have professional mining chips and consume a lot of electricity. With the increase in the number of "miners" and "mining" costs, professional "miners" generally organize professional "mining" teams to carry out large-scale and intensive maintenance of machines to improve production efficiency, using professional computers, specialized maintenance personnel, and dedicated venues for "mining", which are "mining farms".

Upstream News reporters learned that electricity is the most important production factor in "mining", and the cost of electricity accounts for more than 70% of the total cost of a mine. The cost of electricity often determines whether a mine can make money, which is why Bitcoin "miners" chase electricity.

The large and small hydropower stations developed in cascades on the rivers in Sichuan produce abundant electricity that is cheaper than in the mainland, but due to the lack of ultra-high voltage transmission lines, the electricity produced cannot be exported to the mountains and can only be "abandoned". The power-deficient Bitcoin "mines" and the "abandoned power" hydropower stations have made Sichuan the "Mining Capital of the World".

The name "Mining Capital" is not an empty title. Even the old man who looks after the machine room of the power station knows that "they are doing 'mining' work and it makes a lot of money."

Unlike Shi Lei who lives deep in the mountains, Zhang Jun (pseudonym), a maintenance engineer at another Bitcoin "mine", has lived a migratory life in his three years of work, spending his summers in Sichuan and winters in Xinjiang. Zhang Jun told Upstream News that they work for their bosses and go wherever their bosses want them to go. In the north, thermal power is so abundant in winter that it is directly abandoned due to heating and other reasons, so the cheap electricity prices in winter attract a large number of miners, even if they have to travel nearly a thousand kilometers; in the summer, Sichuan's cheap hydropower attracts miners back to the deep mountains in the southwest. This year, there is a new situation. Due to policy reasons, traditional winter destinations such as Xinjiang and Inner Mongolia no longer welcome miners. This winter, they may continue to go south, and they heard that there is a new stable power source.

On October 31, a large number of mining machines were located in the computer room of a Bitcoin "mine" deep in the mountains of the western Sichuan Plateau, with various lines densely packed. Photo/Hu Lei, an intern reporter from Upstream News

“Mining farm”: Monthly loss of RMB 400,000

Shi Lei told the Upstream News reporter that the task of "miners" is to compete for the right to keep accounts, and to calculate a mathematical hash puzzle 24 hours a day. Those who succeed can obtain the globally recognized right to keep accounts. This process is called "mining". Before 2016 when the price of Bitcoin was relatively low, Bitcoin was very easy to "mine". Even ordinary computer CPUs could do it. You only need to download specific software to automatically calculate and mine. However, as the price of the currency rises, more and more people want to get a piece of the pie. The calculation content of "mining" has become more and more complicated, and the requirements for machines have become higher and higher. Professional "mining" teams have emerged.

A reporter from Upstream News entered a "mine" and saw that three iron houses built with board houses were the machine rooms where the mining machines were placed. On one side of the machine room was a huge exhaust fan, and on the other side was a water curtain for cooling. A suitable ambient temperature is a necessary condition for the normal operation of the mining machines. Several high-voltage wires as thick as bowls were directly led from the hydropower station to the downstairs of the machine room. The substation was right next to the machine room. After the high-voltage electricity was converted into 220-volt current through a transformer, it was directly swallowed up by the nearly 18,000 electricity-loving monsters in this mine.

What is the profit from mining? The maintenance staff at the mine said that they are only responsible for the maintenance of the machines and have no idea of ​​the specific Bitcoin profit, but based on the 1800W power of the machine and the electricity price, the daily electricity fee for each machine is about 14 yuan.

Upstream News reporter contacted Lao Zhang, a "miner" who owns more than 10,000 bitcoin mining machines. He said that a relatively new S9 mining machine can now mine only about 0.0005 bitcoins a day under ideal circumstances, which is equivalent to RMB 22.3 at the bitcoin exchange rate on November 1.

According to data released by the Bitcoin authority, the global mining volume of Bitcoin on November 1 was 2,013 in 24 hours, and this figure is still declining. For a "mining farm", income = Bitcoin produced × coin price - mining machine cost - electricity cost - maintenance cost and labor cost - mining farm depreciation cost.

"Miner" Lao Zhang reminded that the output of Bitcoin is decreasing every moment and the price is changing all the time, so the efficiency of each machine is also changing all the time.

Lao Zhang said that his "mine" deep in the mountains, together with his friends' machines, has a total of about 10,000 machines, accounting for a little more than 50% of the total number of machines in the mine.

Most of the miners used in Lao Zhang's "mine" are Antminer S9 miners, which he purchased over a period of more than a year. Because of the large price fluctuation range, the specific cost of the mining machine cannot be estimated. According to official data, the current price of Antminer S9 miners is 2,300 yuan per unit. At the peak last year, the price of these mining machines once reached more than 10,000 yuan per unit. Lao Zhang estimates that the total value of his batch of machines is about 100 million yuan. The average monthly cost of each machine, including depreciation, electricity, etc., is about 100 yuan, and the income from "mining" is only 60 yuan at today's Bitcoin price, which means that each machine has a monthly loss of 40 yuan. According to the current price trend, the loss is still likely to expand.

The falling price of Bitcoin has made life difficult not only for the "miners", but also for the sales of mining machines. Take Bitmain, a Bitcoin mining machine manufacturer, for example. The company, headquartered in Haidian, Beijing, has quickly become the world leader in mining machines due to its design of ASIC chips for mining. During the peak of mining in 2016 and 2017, Bitmain sold more than hundreds of thousands of mining machines, each of which used hundreds of ASIC chips. For example, an Antminer S9 uses 189 ASIC chips. Caixin magazine reported that in July this year, Bitmain completed its B round of financing, receiving investments from Sequoia China, US hedge fund Coatue and Singapore's state-owned emerging market investment fund EDBI, with a valuation of US$12 billion.

As the price of Bitcoin fell, the price of Antminer S9 miners dropped from nearly 10,000 yuan per unit at its peak to 2,300 yuan per unit now, with a huge drop in revenue. Bitmain has also begun to vigorously develop new technologies such as AI in addition to its "main business" of mining machines, expanding its business operations and trying to get rid of the stereotype of "only focusing on Bitcoin".

On October 31, a mining machine in a Bitcoin "mine" deep in the mountains of the western Sichuan Plateau had a power of 1800w and consumed 43 degrees of electricity in 24 hours. Photo/Hu Lei, an intern reporter from Upstream News

Cryptocurrency traders: “One day in the cryptocurrency world is like one year in the real world”

Wang Cong (pseudonym), an ordinary white-collar worker who used to work in a software company in Chengdu, was born in 1989. He has been exposed to Bitcoin since 2013. At the end of 2017, he sold all his Bitcoins at the historical high and left the market with a profit. In his words, he is "resting at home."

Wang Cong told the Upstream News reporter that he lost everything almost overnight because of Bitcoin, and also because of Bitcoin, he retired early.

"At that time, a colleague in the company began to take frequent leave. After a while, he came back and felt that he had made a fortune. His mobile phone changed from Xiaomi to iPhone, and his wallet changed to LV. He became rich overnight. Later, I heard that he bought Bitcoin," Wang Cong told Upstream News. After being stimulated by his colleague, he carefully bought 6,000 yuan worth of Bitcoin, which instantly increased by 2,600 yuan. He began to imagine whether he should buy a BMW or Mercedes-Benz after making money. A week later, when Wang Cong checked his account again, the 6,000 yuan market value of Bitcoin became 200 yuan. "Later, I learned that a notice was issued at that time, prohibiting third-party payment institutions from supporting transfers and withdrawals on Bitcoin trading platforms, and the price fell by 60% that day."

From 2013 to early 2015, the price of Bitcoin dropped to as low as $160 per coin, a drop of nearly 90%. But in 2016, Wang Cong, who was determined to keep his promise, found that the price of Bitcoin had returned to 4,600 yuan, and that "Bitcoin" and "blockchain" became regular topics in mainstream media in 2016. Wang Cong invested all his savings in the Bitcoin market.

Bitcoin entered an upward cycle at the end of 2016, and on January 5, 2017, it broke through the important mark of $8,000, and Wang Cong became a millionaire.

"A day in the cryptocurrency world is like a year in the real world" has become a favorite saying among Bitcoin players. As this "invisible but audible" Bitcoin becomes more and more valuable, Wang Cong has also invested more and more money, hoping that his wealth will grow exponentially.

The craze over Bitcoin eventually prompted regulators to intervene. The central bank and other regulatory authorities took action in early January 2017, meeting with the main persons in charge of several major domestic Bitcoin trading platforms; in September 2017, the central bank and seven other ministries and commissions jointly issued the "Notice on Preventing Risks of Token Issuance and Financing", which defined blockchain activities such as initial coin offerings as illegal financing activities; two months later, virtual currencies such as Bitcoin were defined as "pseudo-financial innovations."

As the regulatory authorities continued to speak out, Wang Cong felt the pressure and eventually sold all his bitcoins at the end of 2017 and retired from the cryptocurrency circle.

Wang Cong did not expect that, unlike previous periods when Bitcoin plummeted after regulatory policies were introduced, this time Bitcoin seemed to remain strong. When he left, Bitcoin was at almost its highest level since it was issued in 2008.

Wang Cong, who entered "retirement life" early, has always refused to disclose the amount of his profits, only saying that they are just numbers.

Data shows that from the end of 2016 to the end of 2017, the price of one bitcoin rose from RMB 4,410 to about RMB 110,000, an increase of about 2,400%.

On October 31, a corner of a Bitcoin "mine" built along a river in the deep mountains of the western Sichuan Plateau. High voltage electricity is stepped down outside the machine room before being used by the mining machines. Photo by Hu Lei, an intern reporter from Upstream News

Government: The "mine" has not brought any contribution to the local area

In addition to the coin price entering a downward channel, Bitcoin mine owners are also facing pressure from government supervision.

A notice sent by the power plant to Bitcoin "miners" obtained by Upstream News reporters stated that the local government would charge a management fee of 24 yuan per Bitcoin mining machine in the country through a Bitcoin mining machine management meeting. The "miners" believed that mining was currently being carried out "out of faith" and that if the local government tried to charge such "illegal" fees, they would not be able to bear it as they were already losing money.

The director of the local government office told the Upstream News reporter that he did not know the specific situation, but these mines pay nothing in the local area except for electricity bills, so it is normal for the government to charge a certain amount of management fees. Since they are unwilling to pay, they can choose to leave.

The local person in charge of regulating virtual currency said that the government only requires power companies to report basic information such as the number and location of bitcoin mining machines within their jurisdiction, which is a manifestation of fulfilling territorial supervision, "regardless of the responsibility for negligence." There has been no requirement to charge a monthly management fee of 24 yuan per machine, and there is no question of whether it is legal to charge fees.

The person in charge said that these mining machines do not have to pay any taxes or other fees locally, but the large number of external machine maintenance personnel, dense mining machines and tangled wires, as well as the noise and heat generated by the mining machines have had a huge impact on public security, fire protection and the environment.

A government official from western Sichuan told Upstream News that there are a large number of mining machines in their territory. At present, the state has clearly prohibited virtual currency transactions, but there is no clear policy to ban virtual currency production activities such as "mining", and the local government cannot determine whether it is legal. In addition to electricity, the "mine" does not contribute to the local economy in terms of taxation, employment, etc., but instead brings certain safety risks, which makes them feel helpless.

At the national policy level, "mining" and other activities that produce virtual currencies have been characterized as "pseudo-financial innovations." A document from the National Internet Financial Risk Special Rectification Leading Group shows that at the beginning of 2018, the National Financial Work Conference clearly required that "innovations" that deviate from the needs of the real economy and evade supervision should be restricted, so pseudo-financial innovations that are not related to the real economy should not be supported. Local governments should take multiple measures and adopt comprehensive measures such as electricity prices, land, taxes and bad insurance to guide relevant companies to exit in an orderly manner.

At present, there are reports that mining companies are being shut down in Xinjiang and Inner Mongolia. According to the Securities Times, the central bank led a meeting of multiple departments at the end of last year. The main content of the meeting was to standardize and rectify Bitcoin "mines", rather than the "one-size-fits-all" closure rumored in the market. There are many irregularities in the current Bitcoin "mines", such as substandard environmental protection, potential safety hazards, and no industrial and commercial registration. Therefore, multiple departments will work together to rectify them through legal and compliant means. "The general direction is to gradually guide the compression and withdrawal of some irregular Bitcoin "mines" through rectification."

Zhang, who owns 10,000 mining machines, disagrees. "All the electricity we use is unwanted abandoned electricity. This solves the problem of excess hydropower. Hydropower stations used to lose money, but now the water has turned into cash. What reason is there to oppose us?"

Hu Lei, an intern reporter from Upstream News, reports from the western Sichuan plateau